Although payday loans may seem like the easy way to fix your current financial problems, they are not. Instead there are many drawbacks to using payday loans, and you can benefit by learning about these before ever applying for, or receiving, a payday loan.
The extremely high interest rates charged by payday loan companies is one of the biggest drawbacks, and it is something that should deter you from ever using one to hold you over until payday. Some states have gone so far as to ban payday lending companies from offering loans to residents because of the predatory interest rates. In fact, some interest rates are so high that the companies can easily be considered 'loan sharks'. These companies are often making huge profits by giving high interest loans to desperate people.
Why would people even consider applying for a payday loan with the high interest rates? For one thing the advertising campaigns run by most loan companies make it appear extremely easy to get a loan and just as easy to pay it back. The companies will simply ask for a canceled check to get your bank information and will get their money back directly from your account. What the ad doesn't tell you is that because of the high borrowing fees and interest rates you will have double, triple, or quadruple the amount that you actual borrowed taken back from your bank account.
Harassment for non-payment is also a drawback to using a payday loan company. The amount which you are loaned must be paid back, and this may not be accomplished with just one paycheck if you took out a large sum of money. Instead the company will work with you to set up a payment plan that is explained to you before the loan is finalized. The company will make the payment plan seem reasonable and convenient hiding that you are often paying back additional fees. If you are late on a payment or a payment attempt is returned because of insufficient funds companies will call your home and work place constantly. Some will even contact your neighbors and family members to embarrass and harass you. Many payday loan companies have even found ways to go around the laws set in place by the Fair Debt Collection Act so that they can harass loan holders without fear of legal retribution.
Finally the largest drawback to payday loans is the fact that they are not a permanent solution to a long-term financial problem and can often cause more financial woe. If you are living paycheck to paycheck and experience a sudden emergency that requires quick cash, a payday loan will only cause more headaches for you rather than actually help you. You will still end up with an additional bill to pay to a lender that will usually not be reasonable if you experience repayment problems. It is important that you realize this and find alternatives to getting the cash you need in order to avoid serious financial problems later or even bankruptcy.
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